Encouraging Paid Employment

November 12, 2013 | The New York Times |  Link to article

Last summer, a surfer dude in California named Jason used food stamps to buy lobster. He became the star of a Fox News documentary dramatizing the contention that excessively generous public assistance undermines the work ethic.

When he wasn't practicing with his rock band, he was probably dozing off in a hammock, instead of a mere safety net.

The slackers of the world will always be with us. The big question is: Are public policies causing them to proliferate? In narrower, more technical terms, are means-tested benefits significantly discouraging labor supply?

In earlier posts, I have asserted that conventional economic models frame this question too narrowly. Here, I want to emphasize that many public assistance programs are carefully designed to encourage paid employment - especially when there are jobs to be found.

Elizabeth Lower-Basch of the Center for Law and Social Policy provided a broad overview of positive employment incentives in her testimony before a congressional committee last year. She noted that studies of the impact of the earned-income tax credit revealed a far stronger effect encouraging low-income parents to enter employment in the first place than its phaseout (the decline in benefit levels as earnings increase past a certain point) has in reducing work effort.

She also explained how the shift in funds within the Temporary Assistance for Needy Families (known as TANF) toward subsidized child care contributed to significant increases in the labor-force participation of single mothers between 1996 and 2000.

Unfortunately, in 2012, federal TANF money used for child care, including direct spending and transfers to the Child Care and Development Block Grant, reached their lowest level since 1998.

Recent cross-national research shows that women's labor-force participation has increased more rapidly in recent years in countries with generous child care and other family-friendly policies than in the United States.

It is sometimes argued that the means-tested health benefits provided by Medicaid tempt workers to avoid or drop out of paid employment.

But analysis of a recent policy experiment in Oregon, where benefits were extended to a randomly selected group of low-income individuals, showed no statistically significant impact on their employment.

Currently, both Medicaid and the Children's Health Insurance Program create two "cliffs" for working parents; if they earn more than certain thresholds, they abruptly lose eligibility for both programs. This is one reason that the Affordable Care Act encourages states to adopt a Medicaid expansion that will substitute a more gradual phaseout.

During the great recession, the Supplemental Nutritional Assistance Program providing food stamps began to play a more significant role in the social safety net, largely because cash assistance rules became so much more stringent in 1996, imposing strict time limits and work requirements.

Work requirements can't be enforced when people can't find work. Recent econometric analysis suggests that at least two-thirds of the growth in food stamps between 2007 and 2011 was the direct result of changes in local unemployment rates. Much of the remaining growth reflected loosened restrictions aimed to help families cope with increased economic stress.

Now, that policy is being reversed. SNAP benefits have recently been cut, and congressional Republicans are trying hard to impose work requirements so strict that they would exclude applicants who are doing their best to find a job, along with the imaginary multitudes of slacker surfer dudes.

Which is worse, assisting someone who doesn't make any effort on his or her own behalf or denying assistance to someone who both needs and deserves it?

Which is worse, assisting one slacker surfer dude who buys lobster or denying fresh vegetables to hundreds of children, elderly people and working poor who can't afford them on their own?

Most people aren't corrupted by a helping hand. They may be strengthened and enabled by it, becoming more likely to help others in return, as well as to seek employment when it becomes available.

A complete model of the effects of public assistance on labor supply would consider the possibility of positive long-run as well as negative short-run effects.

The best way to reinforce a work ethic is to make sure that people can find work.

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